Corporate Reimbursement Coverage
What Is Corporate Reimbursement Coverage?
Corporate reimbursement coverage is a form of liability insurance that companies purchase to safeguard themselves against losses due to legal actions against their directors and officers. It is one of three parts of directors and officers (D&O) liability coverage. (Directors and officers (D&O) liability coverage likewise incorporates side A, side B, and side C coverage. Corporate reimbursement coverage is known as side B coverage.)
Figuring out Corporate Reimbursement Coverage
Corporate reimbursement coverage is one portion of directors and officers (D&O) liability insurance. This type of liability insurance is to a great extent structured to safeguard the individual executive against losses, however the corporate reimbursement feature likewise covers any losses the firm itself could endure because of legal action against individuals.
The requirement for side B coverage is driven by the indemnification obligation that companies bear for their executives. Generally, this obligation is made explicit in the firm's standing rules or articles of incorporation. This provision expects that the company secure, or pay for legal representation of, executives facing legal action because of satisfying their duties to the firm. This obligation is general in nature, and executives frequently arrange the particulars of their indemnifications as part of a personal contract when they join the company. This is important in light of the fact that the side B portion of a firm's D&O policy can cover losses from claims filed against the individual executive, not the company itself.
Common purposes behind such legal action include:
- Violation of fiduciary obligation to shareholders.
- Inability to fulfill working environment safety regulations.
- Theft of customers from contending firms or former employers.
- Misrepresentation of corporate assets or financial situation.
Types of Directors and Officers (D&O) Liability Coverage
The other two parts of D&O coverage are known as side An and side C. Side A covers executives' financial losses when the company can't satisfy its indemnification obligation. This failure is most common in bankruptcy, and side A coverage powers the insurer to finance the legal defense.
Side C is the least common of the three parts of D&O liability coverage, and is generally just purchased by public companies. Side C explicitly safeguards these companies against claims made regarding the companies' securities.
Investors frequently sue a company and its managers in regards to the value of its securities, claiming some form of bungle or misrepresentation. At the point when this occurs, the company will file a side B claim to cover the costs of safeguarding its executives. Expecting the firm possesses a side C policy, it will likewise make a side C move to cover any losses coming about because of the suit against the company itself.
Features
- Corporate reimbursement coverage is one portion of directors and officers (D&O) liability insurance.
- Companies purchase corporate reimbursement coverage to safeguard themselves against losses due to legal actions against their directors and officers.
- While directors and officers (D&O) liability insurance is to a great extent structured to safeguard the individual executive against losses, the corporate reimbursement feature likewise covers any losses the firm itself could endure because of legal action against individuals.
